Which brings us to the present
Darden reported a net loss of $480 million in Q4, or $3.86 per share, swinging from net income of $208 million, or $1.67 per share, in the year-ago quarter. It’s adjusted loss per share was $1.24. The company reported revenue of $1.27 billion, down 43 percent from $2.23 billion in Q4 2019.
For the first three weeks of Q1, same-store sales are down 31.3 percent at Olive Garden, which led to Darden’s initial guidance of negative 30 percent for the period.
Olive Garden’s recovery is moving a bit slower than some investors expected, but Darden said there’s a straightforward explanation. It’s a logistical issue, not a demand one. The company’s flagship pushed digital sales 300 percent higher than year-ago levels and is reporting positive comps in 10–15 percent of its units. However, necessitated social distancing within restaurants has limited seating capacity in more challenging ways than Darden’s other brands, namely LongHorn.
Olive Garden typically has twos, fours, and sixes in regards to seating options. It has tables for large parties. Lee said the brand’s average party size is 2.3. Unlike LongHorn, which is essentially one big box, Olive Garden has rooms, nooks and crannies, and shorter booth backs. The chain can’t create the same yield adhering to local jurisdictions as LongHorn, or create the same percentage occupancy.
To address this, Darden is installing temporary barriers in about 100 restaurants over the next two weeks to try to improve efficiency. It will analyze progress and decide how many more restaurants to add. Lee said Olive Garden hopes to get as much as a 20 percent capacity increase from the barriers. “We’re going to put every booth in play,” he said. “Right now, every other booth is out.”
As of June 22, Darden said 91 percent of its 1,700 dining rooms were open with at least limited capacity.
Here’s a look at how sales trended in Q1 (ended May 31) across its portfolio:
- Olive Garden: –39.2 percent
- LongHorn: –45.3 percent
- The Capital Grille: –62.5 percent
- Eddie V’s: –65.2 percent
- Cheddar’s Scratch Kitchen: –58.5 percent
- Yard House: –70.7 percent
- Seasons 52: –69.9 percent
- Bahama Breeze: –66.1 percent
More recent weekly performance:
- Week ended June 7: –35.6 percent
- Week ended June 14: –30.9 percent
- Week ended June 21 (includes Father’s Day): –27.6 percent
- Quarter to date: –31.3 percent
- Week ended June 7: –29.9 percent
- Week ended June 14: –22 percent
- Week ended June 21 (includes Father’s Day): –21.7 percent
- Quarter to date: –24.3 percent
Fine dining (Capital Grille, Eddie V’s)
- Week ended June 7: –56.2 percent
- Week ended June 14: –48.2 percent
- Week ended June 21 (includes Father’s Day): –42.3 percent
- Quarter to date: –48.1 percent
- Week ended June 7: –50.2 percent
- Week ended June 14: –38.6 percent
- Week ended June 21 (includes Father’s Day): –38.6 percent
- Quarter to date: –42.3 percent
And here’s a look at sales for Olive Garden and LongHorn restaurants open with at least limited dining room capacity for the entire week:
Week ended June 7
- Total sales per restaurant: $72,739
- To-go sales as percentage of total: 41 percent
- Same-store sales: –26.2 percent
- Number of restaurants: 598
Week ended June 14
- Total sales per restaurant: $75,512
- To-go sales as percentage of total: 38 percent
- Same-store sales: –24 percent
- Number of restaurants: 680
Week ended June 21
- Total sales per restaurant: $80,779
- To-go sales as percentage of total: 40 percent
- Same-store sales: –21.4 percent
- Number of restaurants: 729
Week ended June 7
- Total sales per restaurant: $54,434
- To-go sales as percentage of total: 26 percent
- Same-store sales: –17.9 percent
- Number of restaurants: 369
Week ended June 14
- Total sales per restaurant: $60,460
- To-go sales as percentage of total: 24 percent
- Same-store sales: –10.8 percent
- Number of restaurants: 394
Week ended June 21
- Total sales per restaurant: $70,226
- To-go sales as percentage of total: 28 percent
- Same-store sales: –13.8 percent
- Number of restaurants: 426
From where Darden stands today, Olive Garden appears to be retaining roughly 60 percent of its off-premises sales dollars as in-store dining returns, Saleh said in his note.
The brand’s off-premises business peaked around the third week of April, with average weekly sales of slightly less than $53,000, or about 54 percent of historical sales volumes. In the most recent week, with 84 percent of dining rooms open in some capacity, it fell back to $32,200, which is still double the figure from early March.
While early, this could provide a window into the off-premises future for Olive Garden, even when it returns to more normal dining-room business.
LongHorn has navigated a similar path. Off-premises sales boosted its recovery by hitting $28,653, or 41 percent, of pre-virus volumes in the third week of April—nearly four times higher than early March. Today, with 82 percent of the system’s dining rooms running, off-premises is rolling at slightly less than $20,000 per week with same-store sales down 13.8 percent.
Lee said LongHorn’s ability to triple the past number versus Olive Garden’s ability to double it is just a matter of the first starting from a much lower number to begin with.
Olive Garden has tested a few different off-premises strategies during the pandemic. A key change was dropping the threshold of its own fulfilled delivery program from $75 to $40 in most markets. Lee said they’re settling in the $50 minimum now, with average order sizes coming in well above that. Olive Garden also tested its own delivery, which Lee said was “really inefficient and wasn’t that additive.”
“And so, we’re really focused on this curbside operation and think that’s the future for off-premises,” he said. Curbside popped up as a makeshift drive-thru option in parking lots, and Darden is looking at making it even more streamlined through technology, with a focus on payment.
While some third-party delivery testing has been going on, mostly at Yard House, Lee said Darden didn’t see the business grow faster than its own in-house efforts. The opposite was true.
“Now as we've said all the time, that can change as soon as we see or if we see that those margins are equal to what we do today then maybe we'll go into the third-party model. But as of right now our resolve is strong,” he said.
Lee also announced on the call that chief operating officer Dave George plans to retire August 2. George, 65, has been in the Darden system (previous companies as well) for 23 years. In that time, he’s led Olive Garden, Capital Grille, and LongHorn at different stints and held his current role since January 2018.
“He built great teams and became a mentor to many operators and executives. His can-do approach and attitude permeates throughout Darden and each of our brands today,” Lee said.